GasLog: Robust Growth to Continue

GasLog (NYSE:GLOG), which owns, operates and manages vessels in the liquefied natural gas market worldwide, has been growing at a robust pace over the last few quarters. This growth is reflected in the stock price with Gaslog shares trending higher by 37% in 2014. This article discusses the reasons to believe why the upside will continue for Gaslog over the next few years.

Stellar Growth in 1Q14

GasLog has exhibited stellar growth with the addition of new vessels in its fleet. For the first quarter of 2014, GasLog witnessed a robust revenue growth of 162% to $57 million as compared to the first quarter of 2013. For the same period, the EBITDA surged by 205% to $34 million.

The growth has been driven by increase in number of vessels coupled with an increase in day rates. The average number of operating vessels (owned) was 8 for 1Q14 as compared to 2.8 vessels for 1Q13. Further, the average number of managed vessels also increased to 20 in 1Q14 from 14.8 in 1Q13. This is just an indication of the strong capital expansion program embarked by the company.

The growth in vessels has come at the right time and this is evident from a gradual increase in day rates. The time charter equivalent rate per day for 1Q14 was $79,561 as compared to $76,940 in 1Q13. A high utilization of 96% also indicates a strong market trend.

Robust Growth To Continue

While growth in the past is good to discuss, the stock upside will come from the growth in the foreseeable future. From that perspective, GasLog expects strong growth to come over the next few years and this will help the stock trend higher.

To put things into perspective, GasLog expects revenues of $321 million for 2014 at a utilization rate of 98% for the fleet. I must mention here that the revenue of $264 million in the table is for the remainder of 2014. Further, based on the current contracted fleet, revenue of $343 million is likely in 2015 with an 82% fleet utilization as indicated below.

I do believe that the contractual coverage will increase for 2015 over the next few quarters and the revenue will be in the range of $370-$400 million for 2015. In other words, the next two years will see stellar growth.

I must mention here that the growth projections incorporate the recent agreement by GasLog to acquire three on-the-water vessels from a subsidiary of BG Group for $468 million with time charters back to BG for an average of 6 years. Further, with more vessels expected for delivery in 2014 and 2015, the growth trajectory will remain robust.

Even beyond 2015, there is a significant pipeline of vessel deliveries in 2016 and 2017. Currently four vessels are scheduled for delivery in 2016 and two vessels slated for delivery in 2017. Therefore, even on a relatively long-term, the growth momentum is likely to sustain for GasLog.

Strong Dividends

With continued robust growth and stellar results for 1Q14, GasLog announced a dividend of $0.12 for the first quarter of 2014. This implies an annual dividend of $0.48 and a dividend yield of 2.1%, which is good for a growing entity.

An important point to mention here is the fact that the contracted vessels point to a robust revenue growth in 2015 and 2016. Therefore, in all probability, the dividends will continue to increase over the next few years.

I do believe that GasLog will be a dividend stock like Seadrill (SDRL) few years down the line. Even current dividends are attractive considering the point that investors are potentially getting the double benefit of good dividends and robust stock upside.

Conclusion

GasLog has been growing at a scorching pace in the recent past. This growth has resulted in strong stock upside in 2014. However, with the recent acquisition of BG Group vessels and with more vessels lined up for delivery over the next three years, GasLog will continue to grow in terms of revenue, EBITDA and higher dividend payout.

I do expect the company to perform well in terms of stock upside along with strong dividend growth. GasLog certainly looks attractive with a forward 5-year PEG ratio of 0.53. I recommend the company as a buy with a medium to long-term investment horizon.

About the author:

Faisal Humayun

Faisal is a Senior Research Analyst with eight years of experience in equity research, credit research, economic research and financial modeling.

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